USD/JPY: Upside favored with CNH showing signs of life, Japan's exports drop 2.4%

  • CNH stability is a boon for the USD/JPY bulls.
  • Japan data released earlier today showed exports dropped 2.4%, the trade surplus narrowed in April.
  • USD/JPY looks set to extend Tuesday's rally, unless CNH slides, leading to risk aversion.

USD/JPY is currently trading largely unchanged on the day near 110.55 but may extend the 0.40% rally seen on Tuesday if the oversold offshore Chinese Yuan's (CNH) recovery gathers pace.

The US' decision to ease some Huawei restrictions put a bid under riskier assets on Tuesday, helping stabilize the Chinese currency. The USD/CNH pair fell to a low of 6.9201, having hit a high of 6.9491 on Friday. Meanwhile, US stocks rallied with Dow Jones Industrial Average gaining 0.85%. As a result, the haven demand for the JPY weakened and the USD/JPY pair rose from 110.00 to 110.67.

Investors may continue to buy the risk and sell safe havens like JPY today if the oversold CNH's recovery picks up pace. That would imply the trade war fears have peaked. As of writing, USD/CNH is trading at 6.9311, representing marginal losses on the day.

Further, the Japanese data released earlier today was JPY-bearish. Notably, Japan’s exports fell 2.4% in April from a year earlier, down for a fifth straight month and imports rose 6.4%, leading to a surplus of ¥60.4 billion.

Further, the US 10-year treasury yield is looking north, having ticked higher for the fourth consecutive day on Tuesday. So, there is little incentive to buy the Japanese Yen.

The USD/JPY pair, however, may fall back to the 5-day moving average, currently at 110.19, if the CNH slides toward 7.00 per US Dollar, triggering a fresh round of risk aversion.

Pivot Levels

    1. R3 111.44
    2. R2 111.06
    3. R1 110.78
  1. PP 110.4
    1. S1 110.11
    2. S2 109.73
    3. S3 109.45


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